MOSCOW (Reuters) - European Union foreign ministers could approve sanctions against Russia on Monday beyond the largely symbolic measures taken so far in response to Russia’s actions in the southern Ukrainian region of Crimea.
A day before the meeting, Crimea’s pro-Russian authorities plan to hold a referendum - condemned as illegal by the West - which is expected to overwhelmingly back Crimea’s unification with Russia.
The EU is expected to adopt measures similar to those ordered by U.S. President Barack Obama, who has authorized asset freezes and travel bans on Russian or Crimean officials whom the U.S. holds responsible for threatening Ukraine’s territorial integrity.
The U.S. has warned that additional measures are also possible, while EU governments have warned that any further steps by Russia to destabilize the situation in Ukraine “would lead to additional and far reaching consequences for relations in a broad range of areas” between Russia and EU states.
Below is a summary of steps that western countries have already taken to put pressure on Russia, and further options available to them.
The leaders of the G7 major western economies have announced they are suspending preparations for this year’s G8 Summit with Russia in Sochi. The step is largely symbolic but will be negative for overall investor sentiment towards Russia.
The 34-member Organisation for Economic Cooperation and Development has announced that it is suspending talks on Russia’s entry to the organisation, in progress since 2007, in a further symbolic move that damages Russia’s investment image.
SUSPENSION OF EU-RUSSIA TALKS
The European Union has suspended talks on a new visa regime between the EU and Russia, which would have eased Russians travel to the EU, as well as talks on a new basic agreement with Russia, covering all issues in relations, in progress since 2007. The freeze in these slow-moving negotiations has little immediate impact but symbolizes an East-West chill that could deter trade and investment deals.
U.S. President Barack Obama has authorized the blocking of assets in the United States held by individuals and entities, including companies deemed to have acted to undermine Ukrainian democracy; threatened its peace, security, sovereignty and territorial integrity; and contributed to the misappropriation of its assets.
The U.S. State Department has banned travel to the U.S. for people held responsible for these actions and Congress is working on legislation involving extra asset freezes and travel bans on people deemed responsible for human rights abuses.
EU governments said on March 6 that unless Russia began negotiations with the Ukrainian government within days, it would decide on additional measures such as asset freezes and travel bans.
U.S. officials have indicated that to begin with asset freezes and travel bans would apply to senior officials in Russia’s security establishment and parliamentarians held directly responsible for Russian steps towards the annexation of Crimea, which would not include President Vladimir Putin.
Such targeted measures, similar to those introduced by the U.S. in the Magnitsky Act targeting officials accused of corruption human rights abuses, would be a sore point in relations but might not seriously damage economic relations.
However, U.S. officials have called the measures “a flexible tool” that could be extended to other individuals and entities deemed to be violating Ukraine’s democracy and territorial integrity or misappropriating its assets.
If they are extended to include Russian companies that provide services for future Russian government agencies in Crimea, or acquire former Ukrainian assets in Crimea, their effect could be to cripple the international operations of the companies and deliver a huge blow to investor confidence.
A ban on EU arms exports to Russia has been floated by officials, but France has said that it intends to continue with its $1.7 billion sale of an aircraft carrier to Russia. An arms embargo would be a relatively easy step for the EU to take. It would mostly have symbolic significance as EU arms exports to Russia are limited.
Western countries could apply pressure on Russia by applying existing rules, for example on money laundering, more stringently. Some analysts argue that the untransparent nature of many Russian businesses makes them vulnerable to such a crackdown, which could make western banks and investors reluctant to do business with them.
One way for the EU to impose existing rules more stringently would be to apply its energy market competition rules to Gazprom. This could create obstacles to the completion of Russia’s South Stream pipeline to southern Europe and the extension of its North Stream pipeline in Northern Europe, hurting Russia’s future exports and Gazprom’s earnings. However, many European countries served by these pipelines are reluctant to see their expansion slowed.
IRAN-STYLE FINANCIAL SANCTIONS
Russian banks could become subject to wide-ranging financial sanctions similar to those that were applied to Iranian banks over its nuclear program. Such sanctions involved cutting Iranian banks from SWIFT, the international transactions system, with major implications for their ability to operate. Banks that service Russian government operations in Crimea would be most at risk. Some Moscow-based bankers have called this the “nuclear option”, which could push international banks to leave Russia and halt all trade.
Most analysts are skeptical that the European Union, the major market for Russia’s energy exports, could quickly and easily find substitutes for Russian exports such as gas, making formal trade restrictions unlikely.
However, a continuation of tensions around Ukraine is likely to galvanize European countries into seeking out alternative sources of gas and other energy, with damaging long-term consequences for Russia’s exports and economy.
Russia’s deputy economy minister has said that Russia would respond symmetrically to any sanctions imposed by the U.S. and EU - implying in the initial phase visa bans and asset freezes in Russia on western officials identified by Russia as responsible for western policy towards Ukraine.
Some other Russian officials and commentators have hinted at more drastic steps. A senior parliamentarian has proposed a law that would enable Russia to seize western companies’ and individuals’ property and accounts in response to western sanctions.
Reporting By Jason Bush and Megan Davies in Moscow and Patricia Zengerle in Washington; editing by Philippa Fletcher